Back to top

Analyst Blog

Honeywell International Inc. (HON - Analyst Report) recently updated its earlier announced guidance for third-quarter 2016, ended Sep 30, a fortnight before its earnings release. The revised guidance is based on the separation of the previous reporting segment, Automation and Control Solutions into two new segments, the purchase of Intelligrated on Aug 29, sale of its Honeywell Technology Solutions (HTSI) government services business on Sep 16 and decline in outlook for certain business segments.

In Aug 2016, the company announced that it is realigning the Automation and Control Solutions business segment into two new segments – Home and Building Technologies and Safety and Productivity Solutions, effective third quarter. The separation into two entities will improve efficiency and accelerate decision-making, as well as lead to a more complete integrated suite of technologies for the relevant end markets. Alongside, the company completed the acquisition of leading supply chain and warehouse automation firm, Intelligrated for $1.5 billion. The deal is worth 12 times the estimated 2016 EBITDA of Intelligrated and is a strategic fit to Honeywell’s S&PS unit with its complementary products. Intelligrated's leading supply chain automation solutions will boost Honeywell's portfolio, going forward. Its management expertise is also likely to enrich human capital.

The company has also decided on implement the Financial Accounting Standards Board's (FASB) Accounting Standards Update 2016–09 related to stock compensation, going forward. Proceeds from accounting change and trade of HTSI will be utilized toward fund restructuring and other related charges in the third quarter.

Per this latest release, the company currently expects third-quarter EPS to be around $1.60, down from earlier guidance range of $1.67-$1.72. The adjusted EPS of approximately $1.67 is in-line with the prior guidance range. The current guidance is a result of decline in shipments to Business and General Aviation OEMs, program delays and completions in the domestic and international businesses within Defense & Space, and reduced volumes in Productivity Solutions.

In addition, the company also provided fourth-quarter EPS guidance of $1.74–$1.78, up 10–13% year-over-year. For full-year 2016, EPS guidance is lowered to $6.60–$6.64, from the earlier expectation of $6.60–$6.70 per share. Organic sales are now expected to decrease by 1–2% for the full year.  

Currently Honeywell carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space includes, Barloworld Ltd. (BRRAY - Snapshot Report) , Raven Industries Inc. (RAVN - Analyst Report) and Sumitomo Corporation (SSUMY - Snapshot Report) , each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sumitomo has a long-term EPS growth expectation of 5%, while it is trading at a forward PE of 11.4x. Its share price has gained 9.5% year to date.

Barloworld has a long-term EPS growth expectation of 7%, and is trading at a forward PE of 7.3x. Its share price has gained 4.0% year to date.

Raven delivered positive average surprise of 63.24% over the last four quarters, and has long-term EPS growth expectation of 10%. Its share price has gained 45.1% year to date.

Confidential from Zacks

 Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>